Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for November 3rd, 2004

In 1997 when Hugo Chavez was elected, my feeling was that he would have some degree of success because he would fight crime, attack corruption and devote most of his time to politics and populism, rather than worrying about the economy which is the real problem in Venezuela. I was wrong ion two out of three. Chavez could have cared less about crime, has done nothing about corruption which has bloomed a thousand times during his reign. Despite this, even with cheating in the elections Chavez remains popular thanks to his charisma. Even if the results of the RR had been backwards, that is if the opposition had obtained 60% and Chavez 40%, it still would have been too high given the accomplishments, or rather the non-accomplishments of his administration. The truth is that after five years in power Chavez still continues to have no plan on how to improve the lot of Venezuelans. No matter how many “misiones” you may have, all you are doing in the end is taking money form one program to another. When “Barrio Adentro” is successful, what they really have done is take money away from under funded and dysfunctional hospitals. Barrio Adentro may take care of the poorest population, but at the expense of the less poor and not even the lower middle class. In the end, the problem is that the Chavez administration (or the opposition politicians!) has no plan on how to improve GDP per capita. When GDP per capita stands at $3,500 per person, the only way to improve the life of the average Venezuelan is not only to focus on improving the quality of life of the average Venezuelan, but to make the economy grow. And this is where there is no plan. Whether you believe in a more or less powerful role for the state, the road to growth can not be for the Government to start up telecommunications, banks and airlines for the sake of patriotism. Such ventures in the past have been filled with corruption, mismanagement and inefficiency and there is nothing to suggest that this time around things will be any different. In fact, everything points out that the they will even worse as the absence of checks and a balance is allowing corruption and waste to be worse than ever. PDVSA is probably the best example of the lack of a vision that growth is essential to the future. It has always been my feeling that PDVSA management in the past was too conservative. They restricted their scope to a local PDVSA, without looking for a worldwide PDVSA. PDVSA had little debt (has none today!) and except for CITGO and some ventures in Europe with Veba Oil and a Swedish lubricant company, PDVSA was mostly only in Venezuela. Contrast that with Malaysia’s Petronas, a company that operates in close to thirty countries. Why didn’t PDVSA bid for YPF, allowing a non-oil country Spain, to take over that company via Repsol? Current PDVSA strategy is even worse than it was before Chavez. Orimulsion has been discarded under Mommer’s arguments that it is not profitable enough. Makes me think of the steel projects of the CEPAL 60’s in which the statist Government’s argued that those projects were not profitable but provided jobs. Now the argument is that they are only marginably profitable, even if they provide US$ 1 billion in foreign reserves per year. But in a country with over US$ 30 billion in foreign income from oil, we can afford to throw one billion away. The same way that we threw away US$200 million in the electoral machines purchased less than ten years ago to spend close to US$ 400 million to “prove” the new elections were clean, useless fingerprint capture machines included. But this is probably Venezuela’s tragedy, that most politicians have their very own economic ideas and are fairly ignorant about even simple concepts like orders of magnitude. Case in point is the current Minister of Industry and Commerce who a week ago demonstrated his ignorance by saying that in five years the country’s income from tourism would be larger than that of oil, a scenario possible only if oil falls below one dollar a barrel (probably less!). And this is the guy in charge of industrial and commercial policy! Eight years from now, and I am assuming Chavez get reelected in 2006, I bet the arguments will continue to be about the law and democracy and the poor. God knows where the price of oil will be then, but what is clear is that if this or any other Government does not propose a real plan for sustained economic growth and stability, the issues will not change in 2013. Most opposition politicians can’t do much better either. Their advantage is that there are serious economists on the opposition side that do understand most of these issues quite well. To me these are not such complicated issues. We need to double income per capita if we are to improve the standard of living of the average Venezuelan by a factor of two. Only economic policy that leads to growth will achieve this. Whether one likes it or not it would all have to start with oil. Only the Venezuelan oil industry can leverage growth in the next ten to twenty years in order to improve the life of all Venezuelans. The much maligned policies of the Giusti PDVSA administration under Caldera were right. Under those policies the country would have been producing 5 million of barrels a day this year on its way to six million barrels a day in 2006. At current oil prices that would have been a better place to start an economic plan to improve the life of Venezuelans than where we are starting today. In fact, the unfortunate part is that nothing really new is starting today with the Chavista sweep in the regional elections. It will be more circus than bread going forward and people don’t live off a circus, they need bread too. But a “social” PDVSA without debt, a national airline, a state telecom company, a women’s bank and the most artificial financial system on earth do not form the cornerstone for a growth economic policy going forward.

Cogent Update: A good friend listened to the Cogent conference call
and says this is what was said about the Venezuela contract:

¨During the quarter, we started recognizing revenues from our $54m
Venezuela contract, which contributed to revenue this quarter. In
that, we leased certain equipment for the Chavez referendum on Aug.
15, 2004. We engaged a 3rd party evaluation firm to determine a fair
value for the lease, which was assessed at $7m in this quarter. The
lease was received in revenue this quarter. The remaining $47m of the
remaining contract was pro-rated over the life of the one-year
contract. Currently we are determining the accounting treatment for
the follow-on contract announced last week. ¨

This does not make that much sense to me, since the contract was all
paid in the quarter according to the CNE. Least of all, how anyone
could reach a conclusion that less than a quarter of the revenues are
accounted for in the most important quarter of the contract. This may
all be lock up related since the company went public on Sept. 29th.

Cogent Update: A good friend listened to the Cogent conference call
and says this is what was said about the Venezuela contract:

¨During the quarter, we started recognizing revenues from our $54m
Venezuela contract, which contributed to revenue this quarter. In
that, we leased certain equipment for the Chavez referendum on Aug.
15, 2004. We engaged a 3rd party evaluation firm to determine a fair
value for the lease, which was assessed at $7m in this quarter. The
lease was received in revenue this quarter. The remaining $47m of the
remaining contract was pro-rated over the life of the one-year
contract. Currently we are determining the accounting treatment for
the follow-on contract announced last week. ¨

This does not make that much sense to me, since the contract was all
paid in the quarter according to the CNE. Least of all, how anyone
could reach a conclusion that less than a quarter of the revenues are
accounted for in the most important quarter of the contract. This may
all be lock up related since the company went public on Sept. 29th.

Cogent Update: A good friend listened to the Cogent conference call
and says this is what was said about the Venezuela contract:

¨During the quarter, we started recognizing revenues from our $54m
Venezuela contract, which contributed to revenue this quarter. In
that, we leased certain equipment for the Chavez referendum on Aug.
15, 2004. We engaged a 3rd party evaluation firm to determine a fair
value for the lease, which was assessed at $7m in this quarter. The
lease was received in revenue this quarter. The remaining $47m of the
remaining contract was pro-rated over the life of the one-year
contract. Currently we are determining the accounting treatment for
the follow-on contract announced last week. ¨

This does not make that much sense to me, since the contract was all
paid in the quarter according to the CNE. Least of all, how anyone
could reach a conclusion that less than a quarter of the revenues are
accounted for in the most important quarter of the contract. This may
all be lock up related since the company went public on Sept. 29th.

Cogent Update: A good friend listened to the Cogent conference call
and says this is what was said about the Venezuela contract:

¨During the quarter, we started recognizing revenues from our $54m
Venezuela contract, which contributed to revenue this quarter. In
that, we leased certain equipment for the Chavez referendum on Aug.
15, 2004. We engaged a 3rd party evaluation firm to determine a fair
value for the lease, which was assessed at $7m in this quarter. The
lease was received in revenue this quarter. The remaining $47m of the
remaining contract was pro-rated over the life of the one-year
contract. Currently we are determining the accounting treatment for
the follow-on contract announced last week. ¨

This does not make that much sense to me, since the contract was all
paid in the quarter according to the CNE. Least of all, how anyone
could reach a conclusion that less than a quarter of the revenues are
accounted for in the most important quarter of the contract. This may
all be lock up related since the company went public on Sept. 29th.